Deposit holders fleeced in latest Eurozone bailout

Written by admin on March 17, 2013 – 8:42 am

Cyprus is the latest country joining the list with Greece, Ireland, Portugal and Spain to receive a bailout. While Cyprus only makes up 0.2 per cent of the Eurozone economy and the bailout is worth 10 billion euros, it is making news headline around the world for its unprecedented ‘levy’ on deposit holders.

Deposit holders with less than 100,000 euros will be hit with a once off tax at 6.75 per cent, while those with over 100,000 will contribute a higher 9.9 per cent.

The announcement has sparked outrage with everyday citizens, queuing to withdraw their life savings. However, it is believed the government has frozen electronic transfers until Tuesday so the levy can be processed on the Monday public holiday.

The ounce of logic for this unprecedented decision comes about as almost half of the depositors are foreign, many wealthy Russians. In addition to the Eurozone bailout, Russia is planning to extend a loan of 2.5 billion euro by five years.

But this is no consolation for Cyprus citizens who will wake up Tuesday morning poorer, some losing as much as 10 per cent of their life savings. In a world economy where we should be encouraging prudence, this decision will undermine any belief in saving, and could have wide spread implications.

» Why today’s Cyprus bailout could be the start of the next financial crisis – The Washington Post, 16th March 2013.
» Cyprus’ savers bear brunt of eurozone bailout – The ABC, 17th March 2013.
» Cyprus shellshocked over eurozone bailout – The Sydney Morning Herald, 17th March 2013.
» Cyprus set for emergency parliamentary session over bailout – The Australian, 17th March 2013.
» Cyprus bailout comes at a cost to bank depositors – MarketWatch, 16th March 2013.
» Cyprus bailout: Man threatens bank with bulldozer – The BBC, 16th March 2013.


Posted in Eurozone | 45 Comments »

45 Comments to “Deposit holders fleeced in latest Eurozone bailout”

  1. Michael Francis Says:

    I was just speaking to a mate of mine who was only just talking to his brother in Italy an hour ago. It seems Italians who are now just waking up are headed on mass to the ATM machines.

  2. AverageBloke Says:

    could be a contagion

  3. DX Says:

    safety deposit box looks better and better.

  4. nigel dewar Says:

    I guess that is why so many are buying gold, and not just in paper, but the real stuff you hold in your hands. And then storing it in a private security hold.

    Because if what you store are just numbers in a machine, with some bank. Its not really yours. It can be taken any old time.

    If you cant hold it in your own hands. It is up for grabs.

  5. nigel dewar Says:

    One last thing.

    Please fall over and fail Aussie housing market so I can afford to by a house on my 70k wage! Please Please Please. So tired of renting.

  6. Safe as Houses Says:

    @Nigel. If Aussie housing fell over, our banks will probably collapse. You better hope Penny Wong doesn’t slap a levy on your deposits to bailout out the banks!! Cyprus deposit holders thought they were insured up to 100,000 euro – how wrong they were.

  7. UniHorn Says:

    Pretty strange. The rescuer imposes such a levy over depositors through the incompetent Cyprus government. The rescuer is IMF (“Those are the reasons the IMF has insisted on losses for depositors” see Why today’s Cyprus bailout could be the start of the next financial crisis).

    IMF is not stupid, but why shoud it insist on such a strange condition? Does IMF want to create another GFC?

    Any insightful analysis over this trigger?

  8. Rupert Says:

    @ UniHorn – Well, savers are actually being asked to use 10% of their deposits to buy bank shares. That’s not really that different from what happened with the bailouts in the UK and the US. The government grabs money from the people in the street and puts it in the bankers hands.

    However, a vast amount of the deposits in Cypriot banks is held by Russian oligarchs who are keeping their money ‘off-shore’. That’s a lot of money.

    Now, it’s generally agreed that the IMF intentionally bankrupted third world countries to put them under their control – so it’s not unreasonable to suggest that they are now going to grab bank deposits in Europe and the USA in order to do the same thing, right? But why?

    Well, in effect, the G20 leaders have activated the IMF’s power to create money and begin global ‘quantitative easing’. So, as they’re all in bed with each other, they are basically putting a de facto world currency into play – and it is outside the control of any sovereign body. Neat trick eh?

    The ‘gamble’ is going to be what ‘currency’ will get you the better return when this happens? Gold? Dollars? Sterling? Chinese Yuan? Land? Tiddlywinks?

    At the end of the day we, the general public, are just pawns in this very cruel game of political and fiscal chess.

    As I’ve said before on this site – the survivors will be those with the least amount of debt and the best ability to be self-sufficient.

  9. UniHorn Says:

    Thanks Rupert for the analysis.

    In my understanding, whether the levy is agreed by the Cyprus parlament or not, there will be instant financial turmoil from the Eurozone to the world.

    Case 1, levy imposed anyway. Bank rushes cannot be avoided not only in this country. The fund grabbed through the levy won’t be enough to save the financial system in Cyprus, or to offset its costs as the remaining deposits will disappear from this country anyway.

    Case 2, levy vetoed by the parlament. The banks go to bankruptcies and then the country goes down as well.

    So in either case, Cyprus will not be saved.

    The key is how IMF confines the contangion of bank failures (and country failures) in their proposed scenarioes. Cyprus has been the strategic door of Europe not only in military terms.

    There are worse economies than Cyprus in Euro zone. It seems everyone becomes a losser in this gamble.

    As to the currency winners, what do you have in mind?

  10. Annoying Old Fart Says:

    It’ll take more than this to “undermine any belief in saving”; however, this theft of workers’ savings will certainly undermine any belief in government and the rule of law. Beyond corruption. I wouldn’t be surprised if this leads to blood in the streets.

  11. Donna Says:

    @Safe as Houses. Havent you heard? The Australian government has promised to loan the banks up to about $580 billion if they need it at a bargain basement interest rate of between 3 and 4%. Your deposits will be safe, but the country will be broke. In will step the corporate elite to dictate how the country will be run because they hold the purse strings.

  12. Craig Says:

    The Australian Government is already doing this by stealing money in inactive accounts…people still vote and believe in democracy…

  13. In Vino Veritas Says:

    This could be the “let them eat cake” moment when Europeans realise they will be on the hook for all future bank bailouts. Hopefully there will be a run on all euro banks the majority of which are insolvent. As for the big 4 Australian banks Mr Swan has given them a $380 billion line of credit (guaranteed by the taxpayer) last week just in case. I would think 10%+ of our savings is already committed

  14. Yoda Says:

    Simple, third party risk at play here. Whats yours is yours if you can get it. BANK HOLIDAY WTF
    Remedy – BUY real Gold and Silver and maybe arm yourself. Come and get it Mr EU / IMF if ya want it…..
    Maybe Kevin Rudd could be Australia’s EU / IMF representative. He seems at a bit of a loss at present..

  15. Superman Says:

    I see news Zealand is about to do the same thing, under what they call the open bank resolution.

    Risk to savings if bank fails:
    http://m.nzherald.co.nz/#!/business/news/article.cfm?c_id=3&objectid=10872361

  16. Jimmy Says:

    Stealing 10% from the Russian mafia is not a wise move.

  17. Craig Says:

    The banks steals from the Government who steals from us. Its a set up by the bankers.

  18. Craig Says:

    Rupert: I agree, in these times all debt is bad debt.

  19. Mad Max Says:

    It is a test to see how people will react why else would they choose a small country.

  20. John Theodorou Says:

    Looks like the authorities are going to impose capital controls, a first for the Eurozone, on Cypriot bank deposits – just like Argentina in 2000. The time to have withdrawn money is before the SHTF.

  21. DX Says:

    @Mad Max
    great point of view! it does make a lot of sense.

  22. Suley Says:

    Little off topic guys and girls but ive been visiting this site for a while now and all the while house prices have not crashed(especially not in sydney where I live where they seem to still be rising)… do most of you still really believe a crash is going to happen?
    I have saved up alot of money hoping for a crash so that I can buy a house on the cheap. otherwise not sure what to do with my money

  23. AverageBloke Says:

    Suley a crash will only happen if China collapses and unemployment rises dramatically or if there are significant changes to Negative Gearing.

    By the looks of things China is flat and there isn’t a snowballs chance in hell that anything will be done about Negative Gearing.

    Sorry to be the bearer of bad news.

  24. Rupert Says:

    @Suley – Totally with you there, but the numbers do add up and the current situation is unsustainable. We just have to be patient. The government is doing everything it can to prop up the market – but it is a bubble, I assure you. It cannot go on forever. If you’re really not prepared to rent for another five years, then maybe you should buy, but please ask yourself some pertinent questions first:

    Do I have at least 20% to put down as a deposit?
    Will I be able to afford my mortgage when interest rates rise?
    Am I prepared to sell at a loss without too much financial pain?

    If you can afford to buy without too much borrowing and you are confident in your job security, then go for it, but if you can find a decent landlord and secure a long-term tenancy, then stay renting. There’s nothing wrong with it and you mustn’t let the media and ‘The Aussie Dream’ stigmatise you into thinking that you must own property at all costs – because the costs may end up being way more than you can afford. Good luck.

  25. UniHorn Says:

    Suley’s argument is that property market crash has not happened, seems going the other way, and may never happen. The same embarrasement with good sensed economists is that one can forecast a crash but not sure when.
    This embarrasement allows the sprukers to pass hightend price in the ponzi scheme to less patient players. Keep in mind that it is a ponzi scheme prolonged by government with all possible means, beyond possible means, at any cost. But eventually it is not different than any other ponzi scheme.
    Patience will tell the difference. Only when the upsided pyramid collapses, should sensible buyer join or continue to rent.
    Home ownership is not a must in human society. It has nothing to do with dignity, self-respect, Australian dream, etc. It is not worth the cost to people like Suley.
    Any way, no one can persuade Suley from doing anything he perceives appropriate for him. This is only a forum to share some ideas and remind people of common sense rather than solely resort to other media corrupted by commissions and fees.

  26. BotRot Says:

    @Suley – Depends on your finances and external factors, as others (Rupert, Av’Bloke) have pointed out.

    I’d like to suggest you hold on to your money and rent, in times of such uncertainty, being liquid can be advantages regardless of interest rates.

    Now that Cypriots with over €100K savings are being hit with a 40% theft rate, even holding money is too uncertain. Such things can have their own incarnations here. Maybe it already has. Like when the Government and RBA promising a line of credit to our banks to the tune of between $300-$540 Billion bucks. We will pay for that, rather than rob bank accounts, it maybe money that never makes it into your back account, or monies that were meant to pay a mortgage payment, bill,… but didn’t make it to your hands, despite you earning it.

    Australian property is a bubble. Governemnt, FIRE Sectors, Negative Gearing, and massive debt are holding prices way up hight. I agree it doesn’t make sense. I will state, and some people can back at me with spit and fire, so what, but I will say it;

    The economy is up the creek (you know which creek too), personal debts are astronomical, the mortgage debt alone has either surpassed GDP or about to. All personal debts do surpass GDP. Government debt is not what they state it is, its’ much higher. Unemployemnt is filthy, with under-employment it is just disgusting. Manufacturing is shafted, mining and resources has subsided but hey, even if it hasn’t, for starters mining was an investment boom i.e not yours, and the terms of trade from mining was ~$53 Billion per year. 83% of that was for foreign consortiums.

    So what do we have? Housing, more expensive housing in a reduced wage economy. Don’t buy into the national salary average has increased, it hasn’t, its’ gone south. And now, the RBA + Gov intend to shift the focus from mining to housing. Oh boy! Here comes another uplift MY OPINION.

    Not to long ago, your question would have been answered with a bit more certainty. Like, don’t know when property prices will come down, but stick with the cash and renting. Now to say go with; property, shares, cash, a mixture,… is no longer good advice.

    Back to your post, “…otherwise not sure what to do with my money”. Fancy a bomb proof, fire proof, too heavy to lift, bio-metric securitised, yet comfortable matress?

    P.S I’m not a pessimist.

  27. UniHorn Says:

    AverageBloke,

    It does not matter China goes down or not, negative gearing kept or not, unemplyment goes up or not, inflation goes up or not, etc…

    Australian property market is already in the final stage of a ponzi scheme. The pyramid is shrinking in base without new joiners, can collapse any time.

    Australia has gambled so much of its fotune on this ponzi scheme. Logically it will be worse than Cyprus, Greece, Ireland, Spain, etc. etc. This is why Andy Xie argued with Swan that Australia will be next Spain.

    To make the problem worse, mainstream Australian media flooded with corrupted economists would drown any different voice before it is learnt.

    My concern is that Cyprus may trigger many events in the world, where OZ cannot be luckily exempted all the time.

  28. Greenspan Says:

    @Suley – Ask yourself what has changed?

    Do we still have household debt at near record levels – about 155% of household disposable income? Is housing debt still about 100% of GDP? We have barely started to de-leverage.

    Is the growth in mortgage lending still at all time record lows? Yes, the last time I looked it was the worst in 36 years.

    Is small and medium business still just hanging on? Is insolvencies setting record highs?

    Is real estate professionals still saying it is never a better time to buy?

    What has actually changed?

  29. AverageBloke Says:

    That’s a rational point you make there UniHorn. Unfortunately negatively geared property investors can quite easily make up for the lack of ‘new joiners’.
    I say this as I know quite a few investors who have multiple properties of 3 or more – I know one couple who has 10 and intends to buy more.
    I agree that this is unsustainable but with the tax payer funding negatively geared property investors to the tune of nearly 8 billion dollars a year …. this irrational market has quite a few years left in it.
    Also no politician has the guts to take on the Negative Gearing problem …. so on and on it goes.

  30. DX Says:

    @Suley

    1st, exchange all your money to USD
    2nd, withdraw every cent of them
    3rd, rent a safety deposit box in one of the major banks
    finally, put all your USD into the box.

    and wait……you will be laughing few year later.

    P.S. am NOT kidding

  31. JJ Says:

    The last thing on this planet is to buy USD. The Fed can only print their way out of their debt.

  32. BotRot Says:

    @JJ, they’re printing in hyper-speed in torrents. Their debt is also on the up and up.

    The Fed’s printing runs are mis-directed. Instead of streaming its’ way into peoples hands, it is put right into the hands of big (finance) corporates, and speculators.

    Corporates debts were bailed, but individual/personal debts were not, their debts grew, still are growing. I reckon Cyprus got a less painful shafting.

  33. UniHorn Says:

    AverageBloke

    I agree with you that to certain extent negative gearing could make up the lost “new joiners”.

    Now to share with you my perceptions about negative gearing (NG), which has been used to extremes as tax-effective tool in Australia.

    First, the precondition for tax deduction is “loss” generated from property investment. Otherwise, NG cannot be used to offset taxable income. The loss is mostly from bank loan payment.

    Second, another tax benefit is discounted capital gain by holding the property for certain time. But discounted capital gain is based on a positive capital gain.

    Third, “depreciation” from new property could produce in initial years positive cashflow from NG, which is the shortrun benefit valued by certain speculators but eroded fast by increasing holding costs.

    Fourth and most important premise for any investment is to make profits. NG distorts the fundamental purpose for investments. So fundamentally NG is marginal for investors to consider.

    Only a few personal comments. NG is not that important at all for the property crash.

  34. DX Says:

    so our debt will go away itself?

  35. Craig Says:

    The property market will stay high for as long as the manipulation continues to keep prices high.

    Eventually the property market will crash because the bubble was created to transfer private and public wealth to the banks.

  36. averagebloke Says:

    All very rational arguments Unihorn.

    But the government and the public’s attitude towards NG is completely irrational and more about appeasing keeping the property market afloat.

    So unfortunately I completely disagree that NG is not that important regarding a property crash.

    Personally I think the entire australian property market hinges on NG and that is why politicians would rather talk about anything else other than changes to NG because they know it would crash the market instantly.

  37. In Vino Veritas Says:

    Talk about coincidences. The RBA set up a line of credit early March of $380 billion for the big 4 banks, to protect them from future bank runs in Australia What amazing foresight! Pity they did not discuss with us as we are the guarantors.

  38. Jj Says:

    Mwaaaahahaha!

    http://mobile.bloomberg.com/news/2013-03-27/australian-homebuyer-confidence-lowest-since-2008-genworth-says.html

    Qbe not the only insurer worried.

  39. Mad Max Says:

    Our biggest boom since 1880′s and now thay want our supper to pay there debt were has all the money go. We are in in the late 1930′s as far as I can see. What a great time to be alive to see lies to the masses. Sitting back as it all falls down around us. Swan said he doesn’t want to get in middle of money wars. What a joke if can’t handdle the heat get out of the kitchen.

  40. UniHorn Says:

    DX, could you provide some information about exchange market? I did not find a way to convert AUD to USD in this country without excessive fees and big ask/bid spread. I agree that greenbacks are the only investment worthwhile in reality. Thanks

  41. DX Says:

    @UniHorn

    i have three accounts with my bank.

    1, saving & check: where my salary and other incomes go
    2, long term deposit: as you know, where you can get a bit higher interests with long term AUD deposit
    3, foreign currency account: in this case its USD. where you can transfer your AUD into it. it will convert your AUD into USD while you making the transfer, the rate depends on the foreign currency market the moment you transferring the money. no fees involved & no interest for USD deposit.

    what i have been doing is: every time i got my salary, i leave some money in my saving account to pay off my credit cards, then transfer the rest of them into my USD account.

    make an inquiry with your banker, talk about the foreign current account they offer, see whats the rate and is there any fees involved.

  42. Craig Says:

    The USD will devalue because of quantitative easing (printing)- no Western currency is safe. I would not hold USD anymore than I would hold AUDs.

  43. UniHorn Says:

    DX: which banks in OZ offer such accounts? Thanks

    Craig: AUD is a “soft” currency, it is overvalued at this moment.

  44. DX Says:

    UniHorn: am with HSBC.

  45. UniHorn Says:

    DX: HSBC has small point difference for buying and selling compared to local banks. Feasible to have USD accounts with HSBC. Thanks